Which card should I pay off first?

[Anonymous]

I have two credit cards right now, one from U.S. Bank and one from Capital One.  The U.S. Bank card has a 15.24% APR, while the Capital One card has an 18.3% APR.  The U.S. Bank card was closed last year, and I'm working on paying it off.  While I know it makes sense to pay off the card with the highest APR, I've wanted to focus on the U.S. Bank card.  Once that card is paid off, it's done forever and will be one less bill I have to worry about.  Plus, I kind of view it as the snowball effect, where once that one is done, I can put more money to my other accounts.  So which should I really focus on paying off first?  My score took a big hit last year when I wasn't making much at my job, but I'm on my way up.  I'm working so hard on it, and I want to know the best way to do this!  Any help would be greatly appreciated.

[RobertEG]

Does either card have prior delinquncies, or been charged-off?

 Can either be placed into collection, or is the unpaid debt still in good standing as to making all required min payments?

[vanillabean]

Dancin Anna, welcome to the forums!

It is often said that the highest-interest method is logical whereas the debt-snowball is psycho-logical. But I think the former offers plenty of emotional motivation, because if I ultimately will pay less, it'll calm me from the very beginning. And I certainly don't see how the latter requires any less discipline!

You can divide the overall savings by the months it takes to pay off the cards, which is the average monthly savings. If your focus is on that, paying off the first card faster might just pale in comparison. Put the math on paper and frame it. Hang it up on the wall and make checkmarks every month. It's the better snowball!

[RobertEG]

Looking at what card to pay first depending primarily on their interest rate is certainly a strategy of merit when it comes to monthly interest paid out of pocket.

But that strategy is an economic strategy, and not a FICO strategy.

I recommend that you look at the benefits of both economic and FICO planning.

You have a US Bank and a Cap1 card, both with balances.. 

You say the US Bank card is now closed.  Why was it closed?   If that card is even $1 delinquent or late in any month, they can charge off the remaining debt, or place it for collections.  I would want to know more about the status of that card, such as its current % util, any prior derogs on that card, and its current payment status.

Same with the Cap1 account.  Its current % util?  Its current status (timely or overdue)?

Avoidance of a potential charge off or collection referral will, in my opinion, benefit you a whole lot more than monthly interest saved in paying a card with 15.24% APR vs a card with an 18.3% APR.

Getting your % util of each card to a respectable level will also have a big impact on credit scoring.   FICO does not care one whit about the %APR on either card.

[marty56]

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@Anonymous-own-fico wrote:

It is often said that the highest-interest method is logical whereas the debt-snowball is psycho-logical. But I think the former offers plenty of emotional motivation, because if I ultimately will pay less, it'll calm me from the very beginning. And I certainly don't see how the latter requires any less discipline!

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As a former owner of over 70k of CC debt I can say that discipline was hard to come by and my situation looked hopeless until I used a DMP which used the debt snowball method to pay the debt down.  It wasn't until I started seeing cards PIF did I start to see a ray of hope.

I can't speak for the OP but my spending was out of control and for poeple like me, the debt snowball approach is the recommened method by Dave Ramsey and DMPs.  I did not care about interest rates during my 70k CC debt reign of terror and if I had the discipline to look at the interest rates, I probabbly wouldn't have been there in the first place.

[vanillabean]

Good to hear you found a DMP that worked well for you. I'll readily conceed that different things work for different people and that paying a bit extra in interest is a whole lot better than not getting out of debt!

[Anonymous]

My U.S. Bank card was closed about two years ago because I was over the limit and late on payments.  I had some late payments on my Capital One card at that time too, because I wasn't making much money at my job (I was a server at a new restaurant).  U.S. Bank put me on a special payment plan for a year, where I had set payments and they didn't charge me overlimit fees.  I've been on time and paying more than the minimum on both cards for about a year and a half now, almost two years.  The U.S. Bank card had a $2000 limit, and I'm finally down to about $207.  The Capital One card has a $500 limit, and my balance is about $270.